Belarus economy appears to unravel in wake of terror attack, crackdown

A terrorist attack in Belarus last week and dire warnings aimed at the opposition by President Lukashenko prompted many Belarussians to exchange currency and stockpile supplies.

By , Correspondent

A week after a powerful bomb killed 13 people in a Minsk subway station, and President Alexander Lukashenko warned of stiff punishment for anyone who spreads "panic," Belarus's state-guided economy appears to be unraveling. Now, worried Belarussians are emptying shop shelves of durable goods and line up outside banks in hopes of converting their rubles into dollars or euros.

Experts say the economic crisis was on its way even before last week's deadly terror blast rocked Mr. Lukashenko's 17-year-old regime and rattled the population, mainly due to deteriorating relations with the Kremlin, Belarus's traditional sponsor.

Promises of financial aid from the European Union disappeared after Lukashenko launched a brutal – ongoing – crackdown against the independent media and his political opposition over allegations that he rigged the December polls in which he was re-elected to a fourth term with an improbable 80 percent of the votes.

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But it was probably the remarkable speech delivered on TV by Lukashenko last week that sent Belarussians into the streets to unload their rubles in favor of foreign currencies and dry goods. Lukashenko announced that the terrorist attack had been "solved" by the KGB security service, and several suspects arrested. Then he warned of sweeping new measures against his beleaguered opposition, and special penalties for anyone spreading rumors about the bomb blast or panic over a possible currency devaluation.

"After the terrorist act and Lukashenko's reaction, we see huge lines forming at banks and people grabbing everything durable from market shelves, especially sugar, vegetable oil, and electronic appliances," says Yaroslav Romanchuk, an economist and former opposition presidential candidate.

"This emergency was coming for a long time, because Belarussian authorities cannot manage the exploding current account deficit, the energy crisis and the steady weakening of the ruble," as a result of the end to Russian subsidies, he says. "They need to come up with a program of reforms, but they seem incapable of doing so."

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Reminiscent of Soviet times

Khalip Lyutsina, a Minsk pensioner, says she has seen long lines forming outside banks and currency exchange offices all over the city. "But it seems like there is no foreign currency to buy," she says. "Everybody is scared and depressed, especially after that explosion in the metro last week. We have never seen anything like that here, and it's the main thing people talk about."

Some say it reminds them of Soviet times, when possession of just about any hard commodity was preferable to the dubious banknotes issued by the regime. "The best thing to get your hands on, if you possibly can, is a used car," says Mr. Romanchuk. "That's something valuable that can be taken to Russia and sold for real money."

Russia, which once lavished subsidies upon Lukashenko in return for little more than pro-Moscow speeches, has turned to hard-headed realism in dealings with its former client. On Sunday, Russian Finance Minister Alexei Kudrin said that Moscow might provide an emergency $1 billion loan to Belarus, but only if Lukashenko accepts stringent conditions laid down by the International Monetary Fund, which would include tough austerity measures, deep currency devaluation, and sweeping privatizations that would open the doors for Russian companies to snap up much of Belarus' state-owned assets.

"Lukashenko understands that Belarus faces a choice. He is very nervous, and he is being insolent," says Vladimir Zharikhin, deputy director of the Kremlin-funded Institute of the Commonwealth of Independent States in Moscow. "The simple fact is that if Lukashenko turns to the West, he will have to reform his economy. If he turns to the East, he will have to reform his economy. I know it's hard for the former chairman of a collective farm [Lukashenko] to learn about this, but he will have to."

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Hard hit

On Saturday Lukashenko said that he would slash government spending and lending in order to shrink the budget deficit, moves that might hit hard at social services and the operations of state-owned companies.

In exchange for temporary financial relief from the IMF or Russia, Belarus might have to devalue its beleaguered ruble by about a third, inflicting intense pain in a country where the average monthly income is about $220 and most foodstuffs and manufactured goods are imported.

"Our polling shows that peoples' attitudes toward their economic situation has grown worse, and they are expecting worse still," says Oleg Manayev, director of the Minsk-based Institute of Social, Economic and Political Studies, one of the few independent sociological centers still working in Belarus.

"In short, people are thinking hard and grumbling a lot," he says.

About the motive

Belarussian authorities say five people have been arrested in connection with last week's bombing, though no motive or wider conspiracy has yet been revealed. Instead, the country's KGB security service appears to be continuing its crackdown on a host of unlikely suspects, including opposition politicians, critical websites on the Internet, and independent media.

On Friday Belarus' Information Ministry issued a formal reprimand – which under Belarussian press laws can lead to closure – to two critical newspapers, Nasha Niva and Narodnaya Volya, saying their coverage of the terrorist bombing "brings discredit" to the authorities and hurts public interests. The warning is an apparent reaction to widely reported mutterings, by ordinary Belarussians who voiced suspicions to reporters that authorities may have staged the bombing as a pretext to crack down on any social protests against the coming austerity measures.

Even Lukashenko seemed compelled to address those allegations on TV Friday. "Is the situation in the country so critical that I have to resort to desperate measures? It is not critical."

But some critics argue that Belarus is on the edge of shattering changes, and Lukashenko's options are narrowing by the day.

"Lukashenko's economic system, which is the basis of his power, will collapse if there is real economic reform," says Romanchuk. "But in the absence of reform, inflation is soaring, the population is hoarding goods, and the gap between the ruble's market value and the official exchange rate is widening disastrously. It's high time to choose the road of reform."

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